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Affordable Housing Changes: What You Need to Know

12th November 2015

Affordable housing policy is rapidly changing. There are several key issues affecting the provision and demand for affordable housing which will have significant implications for housing developers and local authorities.

Starter Homes

The Starter Homes initiative, announced in February, aims to help first-time buyers under the age of 40 purchase a home with a minimum 20 per cent discount off the market price. Property values are capped at no more than £250,000 or £450,000 in London. At this stage the emphasis was on supporting the redevelopment of brownfield sites and creating Starter Homes exception sites.

The Housing and Planning Bill seeks to introduce wider duties for local planning authorities to promote the supply of Starter Homes and to take account of Starter Homes in planning decisions. The Bill does not distinguish between types of sites for Starter Homes so the starting point could be all reasonably sized sites - greenfield and brownfield. The Starter Home tenure will be added to the definition of affordable housing within Annex 2 of the National Planning Policy Framework (NPPF), providing more choice for developers. The Secretary of State would also have the power to stipulate the level of Starter Homes to be delivered either on-site or through a developer contribution.

The Housing and Planning Bill enables different levels of Starter Homes for different types of residential development and different areas. Councils may be able to vary the proportion of ‘affordable buy’ and ‘affordable/social rent’ tenures, depending on local circumstances and taking account of the evidence base such as Strategic Housing Market Assessments.

Significant impact on viability

According to the National Housing Federation, the value of traditional forms of affordable housing is between 60 and 70 per cent of market value, compared to new Starter Homes at 80 per cent. This gap is likely to widen with the introduction of a one per cent per annum cut to social rents over the next four years (from April 2016).

The Housing and Planning Minister’s letter to local authorities this week provides guidance to local authorities, including planning officers, on the impact of the changes to social rents on the delivery of affordable housing. Brandon Lewis has instructed local planning authorities to respond positively to developers seeking to renegotiate the tenure mix within s106 agreements, specifically urging councils not to re-open debate on viability if the overall affordable housing contribution/proportion remains unchanged.

The changes to the proportions of affordable buy and rented tenures could also lead to higher CIL payments for private residential homes where Starter Homes markedly improve the viability of schemes.

Retrospectively applied changes

For schemes currently in planning, Brandon Lewis’s letter advocates greater flexibility in the wording of s106 agreements to deliver alternative forms of affordable housing (to include Starter Homes). The changes to Annex 2 of the NPPF could also potentially allow developers with unimplemented planning permissions to vary s106 agreements and change affordable housing provision without objection from the local planning authority.

High Court ruling: Affordable housing exemption and vacant building credit

In a challenge brought by West Berkshire Council and Reading Borough Council, Mr Justice Holgate quashed the Secretary of State’s exemption to provide or make contributions towards affordable housing on small-scale developments of 10 homes or fewer, and also the vacant building credit, designed to offset affordable housing contributions.

The DCLG has been granted permission to appeal against the High Court Ruling made in July. To succeed, the appeal will need to address the major deficiencies with the consultation process identified by Mr Justice Holgate. These included limited explanation of the “disproportionate burden” on small-scale developers and failure to take into account local planning authorities’ substantive points. If the DCLG’s appeal fails, it will need to work with local planning authorities and the development industry to find alternative planning policy mechanisms to reduce the financial burden for small builders whilst protecting new affordable homes supply, especially for those on council waiting lists.